Over the last decade, stock market received much attention as a source and accelerator of economic growth. The major argument for such linkage is that well developed and effective stock market performs key functions to improve the efficiency and flexibility of intermediation, reduce information and transactions costs, and provide valuable information for company valuation, and the prospect of macroeconomic fundamentals. Thus, the issue of what major determinants influence stock markets has become the subject of a research literature and area of interest for government authorities, companies and policy-makers. Hence, the purpose of this paper is to evaluate the impacts of the three major determinants on stock market of Belgium using a regression model. The paper examines the effects of macroeconomic stability, income level and banking sector development on stock market turnover; the paper also investigates whether identified macroeconomic factors help predict future stock market trends and development. The paper is structured as follows. Section 2 provides a brief literature review of stock market development in Belgium and macroeconomic key drivers of stock market trends and development. Section 3 presents analysis of data and justification of research method. Section 4 presents the adopted econometric methodology and empirical findings and their interpretation. Finally, section 6 represents conclusions and policy recommendations.

Literature review

The Brussels Stock Exchanges was founded in 1801 under the Napoleonic occupation (1795-1815) in the period of rapid industrialization (Nieuwerburgh, Buelens & Cuyvers, 2005). The Societe General (SG and the Banque de Belgique (BB) were the two international banks that speeded up and revived the development of Brussels stock exchange by bringing many companies to the market, underwriting their stock issues and providing loans to investors (Nieuwerburgh, Buelens & Cuyvers, 2005). After the issuance of law on joint – stock companies in 1873 in Brussels, the stock market experienced its fastest development. The law abrogated government approval for setting up limited liability companies and gave the right to ban companies from trading to stock exchange. Starting from 1873, many stock companies were founded and allowed on the stock exchange, as well as small companies began to raise their capital by trading their shares on Belgium stock exchange. Thus, in 1873 – 1914, the number of listed shares steadily increased from 174 to 1197 (Nieuwerburgh, Buelens & Cuyvers, 2005).

In the post-war period, Belgium government tightened regulation of stock market by enforcing restrictions to companies to enter the market. However, starting from 1960s, Belgium stock exchange began to internationalize by allowing foreign companies to trade. In addition, the there was a rapid increase of international holdings and conglomerates. In 2000, BSE merged with Paris Bourse, Lisbon Stock Exchange and Amsterdam Stock Exchanges. All together, they formed Euronext N.V., which began the first European exchange market of equities and derivative financial instruments. The BSE division of Euronext was renamed to Euronext Brussels. Main index on BSE is the BEL20.

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